Modify Your 2003 Buy-and-Hold Strategy

Physician's Money Digest, January15 2003, Volume 10, Issue 1

The most common stock marketstrategy used by physician-investorstoday is "buy and hold." Thosewho bought stock and held for longperiods of time were usually very satisfied.Though there were periods ofno growth and even negative growth,and not all stocks participated, thevast majority of those who held theirinvestments through all market climateswere winners. In recent times,this strategy has been very unsuccessful.Today's investors want to know ifit's worth considering.

WISE OR POOR CHOOSING?

The current bear market has mademany investors uncomfortable in holdingstocks. Those investors who owned technologystocks during the roaring 1990smade money so rapidly, they rarely consideredselling stock. In saner times, thoserates of return would have been consideredunrealistic. In the latest stages of thebubble, those returns were considerednormal and reasonable. Thus, eveninvestors who did not really want to holdtheir stocks often felt compelled to do so.

Many who watched from the sidelineswere unable to remain spectators anylonger and finally joined the frenzy. Whenthe bubble burst, and the Nasdaq lost over75% of its value, many investors lost morethan they had made during the entire bullmarket. Those who joined the game in itslatest stages lost the most. Many retirementsavings accounts were decimated. Asa result, some investors have dropped outof the market completely. The technologybubble has given many investors doubtsabout investing in the current market.

But physician-investors can successfullymodify their strategy and make some positiveheadway if they follow a reliableplan. Your plan should help you accomplish3 major goals for your portfolio: tomake it more profitable, safer in the eventstock prices go lower, and less volatile.These are excellent attributes for any portfolio,especially during uncertain times.

Its foundation:

The strategy I recommend has muchin common with the buy-and-hold strategy.Carefully researchand select stocks to buy. To gain the 3positive attributes for your investments,you will have to give up the chance tomake a bonanza on a single stock. In thepast, going for the bonanza was thename of the game, but 2003 calls for amore realistic investment strategy.

Because you are investing in the stockmarket, the most important factor indetermining your future success is yourbeing able to avoid buying stocks thatundergo severe price declines. It is morenecessary than ever to do your homeworkand to be confident in the future of thosecompanies in which you invest. With themodified strategy, you earn good profitseven if your stocks do not rise significantlyin value, as long as you avoid debacles.

SELLING CALL OPTIONS

Once you have done your research andbought your stock, consider making achange to your usual buy-and-hold technique.Make a deal with someone else,offering to sell your stock to that personfor a limited period of time at a predeterminedprice. In return for the right to buyyour stock, the other party pays you cash.You get to keep that cash, regardless ofwhether the other person eventually buysyour stock or not. This suggestion mayseem unusual, but it provides the opportunityfor increasing the profit potential ofyour entire investment portfolio.

This is what occurs when you ownstock and sell a call option. The strategy iscalled "covered call writing." (Write is aterm often used in place of the term sell.)Don't panic. You may have heard thatstock options are only for speculators, butthat is a major misconception. Optionscan be used as very conservative investmenttools, and the strategy describedhere is among the most conservative. It isthe only options strategy an investor isallowed to use in a retirement account.

Mark D. Wolfinger, author of

The Short Book on Options: A

Conservative Strategy for the Buy

and Hold Investor, is an educator

of public investors. He was a

professional options trader at

the Chicago Board Options Exchange for over

20 years. He welcomes questions or comments

at mark@mdwoptions.com. For more

information visit www.mdwoptions.com.